The CPI Differs from the GDP Deflator in That

question 60

Multiple Choice

The CPI differs from the GDP deflator in that

• A)the CPI is a price index, while the GDP deflator is an inflation index.
• B)substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator.
• C)increases in the prices of foreign produced goods that are sold to U.S.consumers show up in the CPI but not in the GDP deflator.
• D)increases in the prices of domestically produced goods that are sold to the U.S.government show up in the CPI but not in the GDP deflator.

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Definitions:

Straight-Line Depreciation

An approach to evenly spread an asset's purchase price over the span of its useful life.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the strategic objectives of an organization, such as acquiring new machinery or expanding operations.

Incremental Sales

Additional sales generated by a specific business activity or decision, such as a marketing campaign or product launch.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding direct labor and materials costs.